The Power of Taking Action: A Stock Compensation Success Story

Avoid the status quo...

One of the biggest mistakes I see people make is doing nothing at all. I’m primarily talking about their finances but that tendency spreads to all facets of life.

Too many people going through the motions and missing out on great opportunities.

Everyone knows they should be doing things to improve their finances. But life gets busy. Work piles up. They get confused. Or they talk to a coworker who makes things sound way more complicated than they need to be. So they default to the status quo—and do nothing.

In reality, taking action, no matter how small, moves you forward. Whether it leads to success or a lesson, action is almost always rewarded over the long run.

Let me share a real-world example…

I recently worked with a woman in her mid-30s living here in Boston. She works at a startup and, like many in the startup world, was granted incentive stock options (ISOs) as part of her compensation.

During our early conversations, we discussed a long-term plan and the opportunity ahead. The company was growing, the outlook was strong, and she had the chance to really benefit if things played out well. It’s always a big if with a startup..

But she kept getting hung up on actually exercising her options. She was hesitant, wasn’t sure of the long-term success of the company, she had heard about something called the Alternative Minimum Tax (AMT), and hated the idea of taxes.

AMT just means that if you exercise a lot of ISOs in a single year—and there’s a big spread between what you paid (exercise price) and the current fair market value—you may owe additional tax that year. But what most people miss is that it’s a credit. You’re not throwing that money away—you’re prepaying taxes and will likely get it back over time when you eventually sell your shares.

Regardless, after several calls, she agreed to take action. She exercised a few thousand shares with relatively little out-of-pocket cost. Not a major risk, but an important step.

A few months later, she called me with big news: her company was offering a secondary sale opportunity to some of its employees. She could sell a portion of her shares to existing outside investors who wanted more skin in the game and an option to provide existing employees with a liquidity event—something that doesn’t happen often at private companies but it’s possible.

If she had done nothing, she would have had no shares to sell. We would’ve had to scramble to exercise and then figure it all out.

Instead, she was now in a position to offload 2,000 shares, with thousands more vesting in the coming months/years. Initially, we expected a sale price around $15 per share, which was the current fair market value of the company (409a valuation, they aren’t public).

At that price, she would have made about $30,000—great outcome, though all taxed as ordinary income because she hadn’t yet met the one-year holding period. Ideally, you always exercise and hold one-year from exercise date and two years from grant date to get long-term capital gains treatment (i.e. pay less in taxes…)

But then she told me the investors were offering to buy these shares at $60 a share.

I fell off my chair…

She exercised those shares at $1. She was now able to sell them for $60..

That single decision to take action led to a $120,000 windfall. Not chump change.

Now, she does not get to keep all $120k (taxes baby!!) Her tax bracket jumped from 22% to 24%, and we estimate she’ll owe around $30,000 in federal tax from this event. But even after taxes, she’s walking away with nearly $90,000 in cash…

But we know the tax bill is coming so we’ll have her submit a quarterly estimated tax payment by September 15th and potentially topping it off in January to avoid any underpayment penalties (penalties I see people get charged all the time..)

More importantly, we don’t lose sight of what she is looking to achieve. What are her goals? A big one was real estate. And that $90k she didn’t have is now earmarked towards a down payment on a home with her fiancé. It gives them options for furnishing the place, renovations, or covering upcoming wedding costs.

It’s changing the trajectory of their situation immediately..

Most do most people do when they get stock compensation? Absolutely nothing.

It’s confusing. They wait. They do nothing. They never talk to a professional. Then they miss out.

If she hadn’t exercised any shares, she would have had zero to sell in this secondary offering. That window would have closed, and the opportunity would be gone.

Instead, she was prepared. She took action, got educated, and now she’s reaping the reward. She knows where she stands tax-wise, she has a stronger financial foundation, and she’s moving forward with clarity and confidence.

Success doesn't come from being perfect. It comes from making moves. Don’t wait until it’s too late. Stock compensation can be one of the most powerful tools to build wealth—but only if you understand it and take advantage of it.

The reward for taking action is not just financial. It’s peace of mind, direction, and control over your future.

If you're sitting on equity compensation and not sure what to do next—don’t be like the 90%.

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. Seek the assistance of a tax professional with more detailed questions.

Stock compensation is risky and no guarantee, work with a professional to understand your own unique situation.